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|Title: ||The Value Relevance of Dividends, Book Value and Earnings|
|Authors: ||Brief, Richard P.|
|Issue Date: ||1-Sep-1999 |
|Series/Report no.: ||Paul Zarowin-01|
|Abstract: ||This paper compares the value relevance of book value and dividends
versus book value and reported earnings. Our work is motivated by recent
research including Ohlson (1995), Feltham and Ohlson (1995), Bernard
(1995), Burgstahler and Dichev (1997), Collins, Maydew and Weiss (1997),
Barth, Beaver and Landsman (1998) and Hand and Landsman (1999). We
justify modeling price in terms of book value and dividends in two ways.
First, using Modigliani and Miller's (1959) argument, dividends may have
a stronger correlation with permanent earnings than reported earnings.
Second, we derive a model of price in terms of book value and dividends
from basic analytical relationships. Three sets of findings are
reported. First, overall, the variables, book value and dividends, have
almost the same explanatory power as book value and reported earnings.
Second, for firms with transitory earnings, dividends have greater
explanatory power than earnings but book value and earnings have about
the same explanatory power as book value and dividends. Most important,
when earnings are transitory and book value is a poor indicator of
value, dividends have the greatest explanatory power of the three
variables. The value relevance of dividends is confirmed further in
statistical tests using holdout samples.|
|Appears in Collections:||Accounting Working Papers|
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